Our View
Today is the first trading day of the new quarter and it’s also the March jobs report. After a big jump in the ADT numbers, expectations are high for a positive jobs number, but what does that mean with the Fed so far behind the 8-ball?
In yesterday’s lean we talked about the “end of quarter walkaway trade” in the Our Lean section. Specifically, it said, “The idea is that by 12:00 the funds have used up most of their buying for the end of the quarter, leaving the ES susceptible to a selloff.”
Well that’s exactly what we had yesterday, with the session high coming in around 11:00 and the ES slowly fading through the rest of the session. Now onto Q2.
Our Lean — Seasonality & Trading the New Quarter
According to the Stock Trader’s Almanac, the first trading day in April has the Dow up 19 of the last 27 occasions and is the best month of the year with an average gain of 2%. In 1999, April had its first-ever 1,000 point gain.
The Dow has finished higher in April for 16 straight months, with an average gain of 2.5%. In April 2020, the Dow finished higher by 11.1% — its best monthly gain since 1938. April tends to anticipate positive first-quarter earnings and is rarely a dangerous month, with recent exceptions in 2002, 2004 and 2005.
In most cases, when the ES closes weak it rallies on Globex. Should the ES gap higher on volume of 350,000 to 400,000, our lean would be to sell the open. If it gaps down, our lean is to buy it.
The ES has been down the last two days, falling 2.25% from peak to trough. Fridays tend to be counter-trend days, so while our longer view is for lower prices, I would not be surprised to see a bounce today — in fact, the odds favor a higher close.
The fact that it’s the monthly jobs report today only adds to the mix. A lot of highs and lows are set on jobs Fridays early in the day, so let’s see how this unfolds.
Daily Recap
The ES traded down to 4590 on Globex and opened Thursday’s regular session at 4589.25, down 12 points from Wednesday’s settlement.
The ES quickly dropped down to 4575.50 at 10:05, traded up to 4584.50, then rolled over and made a new low by 2 ticks down to 4575. From there, the ES snapped off the lows, rallying 22.5 points to the regular-session high of 4597.25 shortly before 11:00. After the high, it was one big choppy mess that favored the downside.
The ES dipped 15 points to 4582, rallied 8.5 points to ~4591 at noon, and then just kept falling. After undercutting the 4575 low by a couple of points, the ES rallied to 4585, then rolled over again. It made new lows at 4568, then rallied to 4583.50 before 3:00 — another lower high in a string of many.
Then the real selling started, with the ES falling 31 points into the 3:50 cash imbalance. When it showed $10 billion for sale, the ES fell another 24 points to a low of 4526.25 and closed at 4527.75 on the 4:00 cash close. It settled at 4541 on the 5:00 futures close, down 65 points or 1.4% on the day.
In The End
In the end, it was all about the mutual funds and ETFs selling the losers. In terms of the ES’s overall tone, the ES was weak due to the rebalance selling and the $10 billion for sale on the close. In terms of the ES’s overall trade, volume was higher at 1.523 million contracts traded.
- Total Range: 88 points
- H: 4614.25
- L: 4526.25
- C: 4530.75
Technical Edge
- NYSE Breadth: 81% Downside Volume (!)
- NASDAQ Breadth: 71% Downside Volume
I want to go in a different direction today.
I want to first note that I am not an analog guy, but I do believe history has a way of repeating itself because human emotions are a driving factor in our decision making and our emotions don’t change all that much over the years.
As it relates to the stock market, the Fed can be dovish or hawkish, different issues will emerge (9/11, Covid, etc.) and the market leaders will change. However, the price action can remain familiar and similar in many ways.
I want you to look at these charts of the Nasdaq Composite after the dot-com bust and then look at ARKK. During their respective heydays, these were the main focus all over CNBC, the newspapers, and the internet.
The Nasdaq rallied 278% over 519 days, with that final blow-off top coming in the first quarter of 2000 (above).
ARKK had a larger rally over a shorter window, climbing 384% in just 335 days, but also topped out in the first quarter (below).
This is the interesting part though.
The Nasdaq fell 68.4% over 390 days after topping out. ARKK fell 67.4% in 391 days.
Wow.
The timing is incredible, although at this point I’m more interested in the rebound, the bottom, and how we move forward.
I love growth stocks. So do plenty of others. It’s possible we get a V- or W-bottom off this massive decline. However, it’s also quite possible that commodity and value-based stocks continue to outperform while growth stocks form a longer base.
Look at how the Nasdaq traded after the big decline.
The Nasdaq rallied almost 44% in 48 days, finally reclaiming its 10-day, 21-day, and 50-day moving averages. ARKK is doing that now and was recently up 38% from the recent low.
But after that initial burst, the Nasdaq traded sideways to lower before ultimately rolling lower in September. Just before retesting the low, it gapped down on 9/11.
Conclusion
Obviously, we have to take some things into consideration here like 9/11 accelerated the downward move.
However, despite some eerie and uncanny coincidences on the timing — such as the decline from the high and how long it took — the main takeaway is that ARKK may have some more upside in the short term, but may very well need more time to build a longer base.
This is important: Don’t look at ARKK to follow the Nasdaq’s price action from 20 years tick-for-tick, %-for-%. The idea is to get an understanding of the price action, which if history at least rhymes would suggest some longer-term consolidation/base forming.
The tech space is far more durable than it was 22 years ago. AAPL, GOOGL, etc. are now safe-haven titans with massive balance sheets. That being said, we’re talking about the high fliers, not AAPL and GOOGL.
While there are high-quality growth stocks that will emerge bigger, better, and stronger from the carnage — my shortlist looks something like SHOP, ROKU, TWLO, TTD, DOCN — there are only so many good ones compared to so many of the duds.
Just like how Apple and Amazon rose from the ashes, others will too. But it may take time!
Game Plan
S&P 500
- Feel free to extrapolate this layout to the SPY and ES
Still stands from yesterday:
“I think we need to cough up ~100 points in the Spoo and see where things stand. That gets us back into the 10-day and 200-day moving averages. If they hold as support, the trend favors the bulls.
If they fail, then we have to start talking about a potential retrace and could put the 4390 to 4410 area in play next.”
XLB
This was a high-numbered setup on the Go-To list yesterday. Let’s see if it can find its footing here near the 10-day.
Top holdings in the ETF with solid charts are included on the watchlist below.
NVDA
Has been a leader in tech. Let’s see if we get some relief near $270. Key area and 10-day ema.
AAPL
$172 area is key.
AAPL has been another leader. If tech loses AAPL and NVDA, that’s not a good look. At all.
Go-To Watchlist
*Feel free to build your own trades off these relative strength leaders*
Numbered are the ones I’m watching most closely. Please look at these closely, as there are several updates (the most recent of which are noted in bold).
- Watching XLB closely for dips! Leading stocks in materials include FCX, NEM, DOW, CTVA, NUE
- PANW — Next trim spot is $645 to $650
- F — stopped at B/E, but decent close.
- COST — Down to runners or all out as $575 to $478 trim spot hit!
- DLTR — Weekly-up triggered — $165 is the upside target.
- NVDA —
- MCK — looking for test of 10-day ema
- BRK.B — Looking for possible support at 10-day ema
- AVGO
- VRTX
- BMY
- TU — Inside-and-up week at $25.80
- MKC — finally punching back up through $99.
- CCK
- Energy — FLNG, XLE, APA, CNQ, CVX, ENB, PXD — etc.
- ABBV
- BROS
- ADM, MOS
- PANW
- AR
Economic Outlook
As we all know, there’s no crystal ball when it comes to trading stocks, options, or futures. But the Market Imbalance Meter may be as close as it comes. Knowing how the “Big Money” is placing its bets can give our trading room a big wave to ride — or a warning sign to stay out of the water. Come check it out now, risk-free for 30 days.
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